We have continued to use the rat liver as a model for both in vivo and in vitro studies on the mechanism of chemically-induced tumor formation. Recently studies on the fate and the possible role of oval cells in both normal liver biology and hepatocarcinogenesis have been conducted. After the administration of 2-acetyl- aminofluorene (AAF) for two weeks combined with partial hepatectomy (PH), only oval cells are able to proliferate and incorporate radiolabeled thymidine at da) 7 after PH. However, at the later time points (9 to 13 days after PH) the label was present in the newly formed basophilic hepatocytes, which is an indication that oval cells are precursor cells for hepatocytes. At a high dose level of AAF, oval cell differentiation to hepatocytes was delayed and metaplastic differentiation to intestinal and biliary epithelial cells was frequently observed. No reutilization of labeled thymidine from dying cells by the regenerating hepatocytes was observed. Lack of glucose-6-phosphatase activity and presence of alpha-fetoprotein (AFP) gene message in oval cells and early basophilic hepatocytes is a further indication that oval cells are precursor cells for hepatocytes. Differentiation of oval cells to hepatocytes after AAF administration follows a pattern similar to that observed in the embryogenic liver. After AAF administration TGF-beta was present in the mesenchymal cells of the liver and in the oval cell compartment. In hepatocellular carcinoma, transforming growth factor-beta (TGF-beta) was present only in stromal cells, the fibrotic liver produced by carbon tetrachloride administration, collagen genes and TGF-beta were expressed in the cell population lining the peripheral hepatocytes of the pseudolobules.